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Volatility: Threat or Opportunity?

Oct. 1, 2012
In a 'VUCA' world, it's time to change your company from one conditioned for control to one aligned for growth.


Volatility, uncertainty, complexity, ambiguity. Thanks to the U.S. Army, we have a handy acronym for the set of conditions and drivers facing virtually every business today.

While last year’s earthquake and subsequent tsunami in Japan brought special attention to the impact of natural disasters, VUCA reaches beyond Mother Nature. VUCA is a truly dynamic term encompassing technological disruption, transitory advantage, fractured markets, multifarious competitors, global economic conditions, unstable governments, political unrest, volatile financial markets, and fickle consumers. Each of these factors drives their own special brand of complexity and uncertainty. However, when such events occur simultaneously, their impact is complex and profound.

Against this backdrop of exponential change, it’s easy to become overwhelmed and highly risk adverse. This is especially true for control-oriented executives who believe that efficiency is the only path to high performance and that improvement requires control and predictability.

But the history of growth has been built on a yin/yang of two essential conditions. First: a capacity to nurture and develop new ideas against the gravitational pull of the status quo. And second: an unpredictable environment that forces and accelerates the need for new combinations.

A capability to continually make sense of a changing environment and seek out new and novel ways of creating value requires a growth mindset; a belief in the competitive advantage offered by agility and the rewiring of the hard and soft organizational capabilities – structures, processes, technology, skills, behaviors, etc. – to survive, adapt and thrive against a backdrop of change.

This growth mindset, the capability to change and adapt, is often at odds with the compulsion and pressure to continually tighten our grip and drive greater efficiency from our current systems, processes and ways of doing things. The paradox is, the further we drive the control mindset – as we eek out every last drop of efficiency from a given way of working – the more fragile we make it in the face of new, different or unexpected shocks and events.

Caltech research scientist John Doyle coined the phrase Robust-yet-Fragile to describe complex systems that are resilient in the face of known or anticipated conditions, but highly susceptible to unanticipated threats or shocks. By definition, a VUCA world delivers more capricious, more extreme, and more unexpected events and conditions.

Turning this to our advantage requires a recalibration of how we develop, deploy and deliver our strategies and business objectives, and the planning and execution processes that support them. Approaches that have previously delivered improving efficiency quickly reveal their inbuilt but implicit fragility, surfacing critical trade-offs between control and fragility on the one hand and growth and robustness on the other.

Today’s VUCA environment can actually add up to a competitive advantage for organizations that are suitably prepared. Following is a snapshot of the mindsets, models, examples and take-away questions for evolving your organization from one conditioned for control to an ecosystem that powers growth.

The Right Mindset: Bridging the Control-Growth Divide

The contradictory pressures of both growth and control have long created a paradox and require a delicate balancing act.

There is a growing awareness that adaptive systems – those that survive and thrive in hostile and volatile conditions – carefully balance mechanisms and capabilities for both control and growth. In the vast majority of businesses, the prevailing ethos, conditioning, tools and techniques of the last 50-100 years have favored the ‘control’ mindset over the ‘growth’ mindset. While this delivered results in stable, predictable settings, it has in many cases unfortunately resulted in very rigid and fragile structures and has served to heighten the Control-Growth paradox now that the external environment is changing.

The paradox is compounded yet further given the speed at which we need to recalibrate our mindsets, processes and behaviors. Most companies do not have the time, or the appetite, for large-scale, company-wide ‘initiatives,’ and in the spirit of agility, we need to progress rapidly recognizing the overlapping and interdependent nature of strategy development, deployment and delivery – keeping focused on our strategic objectives while remaining flexible about how to achieve them.

A typical pitfall in managing for both now and the future is the artificial separation of ‘strategy development’ and ‘strategy execution,’ founded on the outdated belief that a small group of ‘masterminds’ can determine the route to our goals and the rest of the organization just needs to march along it. The dimensions of strategy development, deployment and delivery need to become much more overlapping and intertwined, forming an on-going and adaptive strategic dialogue – simultaneously focusing on both delivering now and developing for the future.

Traditional demand and supply-based planning processes, such as traditional, operationally-focused Sales & Operations Planning (S&OP), that pursue the holy grail of predictability and accuracy ­ project management and Stage-Gate-type processes that look for certainty from the earliest gates; measures and scorecards focused on functional control, as opposed to cross-functional alignment and pointing the way to strategy, etc., ­ are beginning to collapse under their own weight and, unless recast to cope with the new normal, will lose value through irrelevance.

Take just one sacred cow in the S&OP process for example: the perfect forecast. Tomes have been written, millions have been spent and careers have been lost in the quest to secure the “right” number. In a VUCA world, a much better quest than building the perfect forecast is building the organizational agility that enables your business to adjust to quickly shrinking or quickly growing demand by equal measure.

A great example of this is a 100-year-old manufacturer of construction supplies that grew through more than three dozen acquisitions over its history. The same scale afforded by the M&A also created overlap, inefficiency and “stiffness” in the company’s ability to move in synch with the market.

This company righted the situation with a supply chain strategy and mantra to:

  • Eliminate surplus
  • Stock only raw materials, and
  • Create quick turn through a network of build-to-order manufacturing hubs throughout its territories, none more than a day’s drive from the customer.

The strategy was entirely driven by a highly dynamic and responsive collaborative, cloud-based integrated business planning system. At the heart of the strategy, one word: agility.

The company broke up a centralized warehouse and distributed materials. It got rid of pre-fabricated parts and stocked just raw materials. It jettisoned overlapping systems and connected a central planning system through integrated business planning technology.

And, it united multiple demand plans into one view through a dynamic collaborative demand aggregation process. That view enabled it to do “what if” scenario modeling to scope opportunistic potential, evaluate downside risk and build drastically greater flex into its operations. The vice president of Supply Chain shared the result, counter-intuitive to the control paradigm at its core: “We made the demand forecast irrelevant!” Indeed, by turning its supply chain model on its head, right down to the fundamental mindsets and metrics, this business was able to meet up to 30% unforecasted demand. That is agility for growth.

The Right Model: Joined-Up Decision Making

Joined-up –or collaborative-- decisions get to the heart of what is needed to align the many moving parts of a complex organization. Connecting across organizational boundaries, linking strategic choices and tactical actions, and integrating long-, medium- and short-term horizons are critical to this alignment.

But now clockspeeds of different decisions are changing – challenging the typical annual, quarterly and monthly planning calendars. As a result, the conversations need to be different to integrate existing and new portfolios, sense for weak signals of change, and simultaneously execute strategy and inform an ongoing strategic dialogue – changing the players, the questions we need to ask, the information required and the way decisions are made.

MetroPCS, a company launched in 1994 in the chaotic telecommunications market, uses joined-up decision making to keep agile. MetroPCS created a niche of the “anti-contract” in a market that extracted a heavy premium of 200+% cost for the hottest new phones unless customers were willing to sign up for two-year, lock-in contracts. Its competitive play made MetroPCS even more vulnerable to the biggest volatility of all: the fleeting fashion of consumer trend. In the smart phone business over the past few years, the average length of use of a smart phone deflated from 18 months to seven.

MetroPCS, driven by a need to better match its bottom-up with its top-down forecasting, used a cloud-based integrated business planning software solution to bring together six systems, dozens of spreadsheets, and hundreds of details across its multiple SKUs to power a necessary nimbleness.

MetroPCS knew from experience it needed enough insight on trade-off scenario planning to respond on a Friday to a new competitive model on the market—and deliver on a Monday a promotional campaign to avoid “islanded” handsets, that would quickly fall out of favor. Its strategy was all about joined up – fast moving – decision-making, but MetroPCS got a bonus in the process.

Their integrated business planning automation ensured a rigor in cross-company data quality and collection that resulted in, for the first time, a look at the most granular feature and function level of every SKU imaginable across all of their handsets. In this case, MetroPCS’ strategy for business agility has the serendipitous results of generating a central SKU item master database that is now used by the entire organization as the product “go to” resource.

The Right Questions: Balancing Control and Growth for Agility

Where do you start? Of course, control will still matter, but it will matter less and our definition of ‘control’ will need to be recast as the capabilities for growth matter more. Following are some questions to frame, focus and accelerate the transition from a traditional, control-focused organization, to an agile one, aligned for growth:

  • Does VUCA represent a strategic threat or opportunity in our environment and do we understand our drivers of growth in this context? Are these reflected in our strategy, tactics, and underpinning assumptions and plans?
  • Are we wired for Control or Growth? Are our internal mindsets, processes, routines and behaviors synchronized with our external realities?
  • Do our decision-making processes and forums ask the right questions, bring together the right perspectives from across the business, and generate insight and coherent actions in support of our Control-Growth balance?
  • Do we have explicit development actions building organizational capability to develop agility and use VUCA to our advantage?
  • Are we countering VUCA with vision, understanding, clarity and agility, and accelerating results through an aggressive transition, rapid experimentation and learning-by-doing?

In approaching these questions with a growth mindset and looking for new opportunities, consider the words of Nobel prize winner Albert Szent Gyorgi: “Discovery consists of looking at the same thing as everyone else and thinking something different.” When you are open to change, volatility drives opportunity.

Chris Turner is co-founder of StrataBridge, a boutique consulting firm that specializes in advising fast-moving, brand led organizations on strategy, innovation and operations. He has worked with leadership teams around the world including Anheuser-Busch, Bakehouse, Coca-Cola, Compass Minerals, Mars, Mass Mart SA, PZ Cussons, SC Johnson, Shell.

Glen Margolis, CEO of Steelwedge Software, has led the industry in the development and delivery of technology to power planning agility. Steelwedge is the global market leader of cloud-based integrated business planning (IBP) and collaborative S&OP solutions trusted across the world’s best manufacturers including Lenovo, Jaguar Land Rover, Canon, Sony, Tyco, Dow and Emerson.

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